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Friday, 30 November 2012

Minimum Alcohol Pricing

The government is proposing a minimum retail price for alcoholic drinks of 45p per unit (a unit is ten cubic centimetres of alcohol), despite having received legal advice from the EU that minimum pricing is not permitted. The EU suggests increasing excise duty instead.

The BBC has published a graphic showing the minimum price of various drinks under the 45p limit:

It's instructive to compare these prices with the duty + VAT on duty currently charged:

Can of lager

Can of cider

Bottle of wine

Bottle of whisky

Bottle of vodka

45p/unit

£1.56

£1.66

£4.22

£12.60

£16.88

Duty+VAT

£1.02

£0.30

£2.28

£9.01

£12.06

Increase required

53%

456%

85%

40%

40%

The bottom row shows what percentage increase would be required in excise duty to make duty+VAT come to 45p/unit. What stands out is how low the duty is now on cider. This is the result of pressure on successive chancellors to protect the cider industry, as depicted in adverts where the apples are hand picked in a scene of rustic simplicity. In reality, very little apple and a lot of sugar go into the production of cheap cider.

Proponents of minimum pricing argue that the alternative of raising duty would not stop retailers undercutting the intended minimum price by selling at a loss. I doubt that would be much of a problem, and if it were the government could revive its previous proposal, now abandoned, to prohibit selling at below duty + VAT on duty (I don't know whether the EU would object to that). However, I don't believe that's the real reason to prefer minimum pricing - the real reason is the almighty fuss that would be raised by the trade if excise duty were radically increased. With minimum pricing, the extra money paid by consumers goes to the trade, to compensate it for lost sales.

If minimum pricing were introduced, the effect would be to increase smuggling and illegal production, and to compress prices at the bottom end, leaving products to compete on brand recognition rather than price. Can football fans look forward to the Diamond White Premier League?
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What of the health arguments for minimum pricing? Back in September I raised both eyebrows at a BBC report claiming that "The deaths of 50,000 pensioners could be avoided over the next decade if minimum alcohol pricing is rolled out in England, according to new research. The BBC's Panorama programme commissioned the research from statisticians at Sheffield University." I've just discovered that the BBC corrected its report three weeks after publication:

Correction 28 September 2012: The main figure in this story has been amended from 50,000 to 11,500 after it emerged that there had been an error in the calculations carried out for Panorama by the School of Health and Related Research at the University of Sheffield.

Well, it's good that they corrected it. But this won't do. Sheffield University has got a substantial team doing Alcohol Research, they produced a report for a television programme whose key findings were bound to be widely repeated, but they committed an error so obvious that it could easily be spotted by a random blogger (albeit not by a Panorama reporter). It's common to make mistakes with numbers, so anyone doing statistical work needs to be checking every step for plausibility. Evidently the Sheffield team isn't doing that. I see no reason why one should trust their output not to be littered with less obvious errors.